Nebraska Lawmakers Foresee Dip Into Cash Reserves to Close Budget

CHICAGO - After years of building up a rainy-day fund, Nebraska is now one of only a handful of states not facing a budget crisis. But as state leaders begin to craft a new budget for the upcoming biennium, it's likely they will move to dip into the cash reserves in order to stave off a deficit stemming from weaker-than-expected revenues.

Fiscal analysts recently forecast that Nebraska faces a $377 million shortfall in its upcoming biennium that starts July 1. The shortfall ends four consecutive years in which Nebraska's revenues exceeded estimates. Officials warned revenues could decline further next year if the national economy continues to bite into state.

Republican Gov. Dave Heineman will use the revenue figures to craft his proposed 2009-2011 budget, which he is expected to unveil shortly after the Legislature convenes next Wednesday.

Nebraska's shortfall comes after the state has spent years building up its rainy-day fund. By law, the state must have a cushion of at least 3% of budget spending during each two-year cycle. The rainy-day fund is currently expected to reach $574 million by July 1, and, without dipping into it further, would grow to just under $600 million by the end of 2011, according to recent budget documents. The state is currently operating under a roughly $6.8 billion 2007-2009 budget.

As lawmakers convene next week, both Heineman and a majority of lawmakers have said they expect to spend some of the cash reserves - as well as cut spending - in order to close the budget gap.

A recent pre-session poll conducted by the Associated Press showed that not one legislator favored raising taxes to close the budget gap. While some budget cuts are expected, Heineman has said he does not anticipate requiring state agencies to slash their budgets.

"We will have a challenge before us, there's no doubt, but I'm glad we're Nebraska," Sen. Lavon Heidemann, chairman of the Appropriations Committee, was quoted as saying in local press reports.

Legislators in 2007 dipped into the state's cash reserves to fund roughly $110 million of capital projects.

Last year was the fourth consecutive year in which the state ended its fiscal year with revenues exceeding forecasts - and the fourth consecutive year in which revenue growth exceeded the 25-year annual average, according to state budget documents.

But even last year, state budget officials warned that "based on past cycles" it was likely the state would need to rely on the cash reserves for "significant protection for a downturn in revenues in future years."

State fiscal analysts earlier this year expected to bring in roughly $7 billion in revenues through 2011. After recently revising that revenue figure downward by $377 million, fiscal analysts will present two more revenue forecasts at the end of February and at the end of April as state lawmakers prepare a final budget.

In addition to substantial cash reserves, Nebraska enjoys a low debt per capita ratio of $24 and has fully funded its three pension plans as of the end of fiscal 2006. It has continued to meet its annual required contributions of $19 million, according to credit analysts.

Constitutionally prohibited from issuing general obligation debt, Nebraska is allowed to sell revenue bonds for highway construction and construction of water conservation structures. But it currently carries no revenue debt for these purposes. The state has $19.4 million of direct lease-revenue debt as of the end of 2006.

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